Ljb Company's Internal Controls
Case Study 2: LJB Company’s Internal Controls
Michael Del Toro
FI504 - Accounting
Abstract
This paper shall focus on the criticalities involved in LJB’s transactions and how it may implement internal controls to the business processes while increasing the accountability of individuals involved in its ‘lean business process.’ With the advent of the Sarbanes-Oxley Act and its repercussions to the manner in which businesses must prevent fraud (both external and internal) to not misrepresent any of its financial data to its investors – the same applies to LJB’s Company since it has plans of going public and hence goes under the scrutiny of everyone (aka the investors and the larger business community looking for investment opportunities).
Case Study 2: LJB’s Internal Controls
“Independent internal verification is especially useful in comparing recorded transactions with existing assets… Large companies often assign independent internal verification to internal auditors. Internal auditors are company employees who continuously evaluate the effectiveness of the company’s internal control systems. They review the activities of departments and individuals to determine whether prescribed internal controls are being followed. They also recommend improvements when needed. In fact, most fraud is discovered by the company through internal mechanisms such as existing internal controls and internal audits. For example, the fraud at WorldCom, involving billions of dollars, was uncovered by an internal auditor (Kimmel, Weygandt & Kieso, 2009).” Therefore, as the authors have stated in the book titled – Financial Accounting: Tools for Business Decision Making, it is a good practice to have independent review of each of the company’s financial transactions since this can help any business, especially a business like LJB to continue to keep a high ethical standard in its accounting responsibilities.
“Internal control frameworks (ICF) provide a basis for understanding
Michael Del Toro
FI504 - Accounting
Abstract
This paper shall focus on the criticalities involved in LJB’s transactions and how it may implement internal controls to the business processes while increasing the accountability of individuals involved in its ‘lean business process.’ With the advent of the Sarbanes-Oxley Act and its repercussions to the manner in which businesses must prevent fraud (both external and internal) to not misrepresent any of its financial data to its investors – the same applies to LJB’s Company since it has plans of going public and hence goes under the scrutiny of everyone (aka the investors and the larger business community looking for investment opportunities).
Case Study 2: LJB’s Internal Controls
“Independent internal verification is especially useful in comparing recorded transactions with existing assets… Large companies often assign independent internal verification to internal auditors. Internal auditors are company employees who continuously evaluate the effectiveness of the company’s internal control systems. They review the activities of departments and individuals to determine whether prescribed internal controls are being followed. They also recommend improvements when needed. In fact, most fraud is discovered by the company through internal mechanisms such as existing internal controls and internal audits. For example, the fraud at WorldCom, involving billions of dollars, was uncovered by an internal auditor (Kimmel, Weygandt & Kieso, 2009).” Therefore, as the authors have stated in the book titled – Financial Accounting: Tools for Business Decision Making, it is a good practice to have independent review of each of the company’s financial transactions since this can help any business, especially a business like LJB to continue to keep a high ethical standard in its accounting responsibilities.
“Internal control frameworks (ICF) provide a basis for understanding
References: Cereola, S. J., & Cereola, R.J. (2011). Breach of Data at TJX: An Instructional Case Used to Study COSO and COBIT with a Focus on Computer Controls, Data Security, and Privacy Legislation. American Accounting Association, 26 (3). Retrieved from ProQuest Business database on October 5th, 2011. Kimmel, P., Weygandt, J. & Kieso, P. (2009). Financial Accounting: Tools for Business Decision Making. John Wiley & Sons, Inc.